SALEM, Ohio — Allegations of fraud brought against the Eastern Livestock Company may have merit, as a report to the Hamilton County Common Pleas Court shows.
More than $130 million has been lost by 743 cattle producers and sellers after Eastern Livestock Company came up short in its bank account in November. Checks begin bouncing in early November after cattle were sold at sales and directly to Eastern Livestock.
According to court documents filed in Hamilton County Court of Common Pleas, Fifth Third Bank alleges a complicated bank fraud and check-kiting scheme.
When Fifth Third discovered Eastern Livestock’s scheme, the bank froze the account.
A Hamilton County judge appointed Elizabeth M. Lynch as receiver in the case of Fifth Third Bank vs. Eastern Livestock Company Nov. 9, 2010. She issued a report in December about what she has found since entering the business.
The receiver took possession of the company’s headquarters, securing the facilities and gathering the accounting records.
Lynch has reportedly met with both the USDA and the FBI and is cooperating with them in their investigations.
According to the court documents, Lynch and agents have sifting through the company’s books and records in order to identify collectible accounts receivable, salable cattle inventory and other assets. The receiver has learned that the financial information the company provided to its lenders and other parties-in-interest substantially overstated the value of assets and profitability.
The investigation into the accounts receivable is ongoing. However, Lynch noted in her report to the court that there are a substantial number of the accounts receivable that are not collectible and the reliable value of accounts receivable is only a fraction of the reported balance.
Lynch reported several issues in the accounts receivable including invoices that do not appear to be supported by actual shipment of cattle, invoices representing cattle shipped to a third-party for feeding, not a sale transaction, and invoices having been paid by a customer but the proceeds were diverted to other entities.
Other issues stated in the court report include customers having paid the underlying producer who had not been paid by Eastern and some customers filing action in local courts in what are called interpleader actions. An interpleader action originates when the plaintiff holds property on behalf of another, but does not know to whom the property should be transferred.
The investigation into the cattle is ongoing. So far, though, the receiver told the court that the number of cattle listed does not exist and that the real value of the inventory is only a fraction of the reported balance.
Issues noted in the inventory include the quantity of cattle not being supported by the number of actual cattle and cattle being previously shipped but not yet invoiced.
Lynch is reportedly attempting to locate the additional cattle inventory by contacting feedlots and following up on leads provided by various parties.
However, the ownership of some cattle are in question because they have not been paid for, or the company entered into ownership participating agreements.
The report does show that several investments were identified in the records of Eastern Livestock and they have a value in excess of $5 million. Lynch is still investigating the nature of the investments and their full value.
Meanwhile, the involuntary bankruptcy case filed against Eastern Livestock Company by several businesses, including cattle auction barns, cattle producers, haulers and other businesses owed money, is proceeding in the southern district of Indiana.